Structured settlements are significant, guaranteed annuities which imposed tax obligation is never imposed. It refers to the settlement of a claim for damages through a lawsuit on a periodic payment over an agreed period of time or for life. The payment of installments is mostly spread over a period of at least five years. Just like any legally awarded compensation for undeserved injury or death, the structured payment is never taxed. However, in a situation where the plaintiff receives payments and uses them to create gains such as capital gain, interest or investment growth, that amount is taxed.
How it Works
The process of Issuing Structured Settlement
How to Secure Structured Settlements
- The Plaintiff sues the defendant: This is deliberately done to seek compensation for an illness, injury or death that was caused by the defendant. In most cases, the defendant is compelled to agree to give money to the harmed through a structured statement so that the lawsuit is kept from being forwarded for trial. If it happens the case is tabled for trial and the judge rules in favor of the plaintiff, the defendant has no otherwise other than to set up the settlement.
- The Plaintiff and the defendant should consult a Qualified Assignee: This is mostly done to determine the terms and conditions of the structured settlement agreement. The agreement contains the number of regular payments to be done, the duration for payment, whether it should be increased or supplemented by a huge amount of payouts at times and so forth. The defendant has to give money to the qualified assignee to purchase an annuity for the plaintiff.
- Purchase of an Annuity from a Life Insurance Company: The qualified consultant buys an annuity from a life insurance company. He should ensure that the setting of the annuity contract aligns well with the settlement needs. Once the annuity terms are set, they should never be subjected to change. Immediate amount of money could also be set aside to take care of the fees for the attorney or for funding a specified trust.
- Payment to the Plaintiff by the Life Insurance Company: The plaintiff is compensated by the life insurance company by following the terms of the annuity contract. The annuity can earn interest in order to protect its value from inflation. The only way in which the plaintiff is assured to get the agreed amount from the settlement ahead of the scheduled period is by selling the right to future payments on a secondary market.
At times computing the amount of structured settlement can be a very complex financial task. Therefore, a lawyer or financial advisor is expected to hire an economist who would help in calculating the contract value.